Chapter 9. Choosing an Asset Allocation
In This Chapter
Seeing what an asset allocation is and how it can improve your success
Deciding what kind of asset allocation is right for you
Using online tools to pick the right asset allocation
Creating a custom index to track your asset allocation's success
You wouldn't sail a ship without a map or bake a cake without a recipe, but so many online investors do the equivalent when they buy and sell stocks and other assets without understanding how they fit into a broader plan. That plan, in investment language, is called an asset allocation. Your asset allocation determines how much of your portfolio is placed into different types of asset classes, or types of investments — typically stocks, bonds, and cash. By following this plan, you can make sure that you get the maximum return for the amount of risk you're taking. One controversial study even claims more than 90 percent of a portfolio's swings, on average, is due to the asset allocation.
In this chapter, I show you how an asset allocation plan can improve your success investing online. You also find out how to build your ideal asset allocation using online tools to help you find an allocation that's right for you.
The Recipe for Your Online Investing: Asset Allocation
Many investors make the mistake of chasing random stocks they hear about, buying them and throwing them into their portfolios. They pick up stock tips from TV and neighbors and blindly invest. Some of these investors wind up owning ...